Tensions between traditional and extended company reporting

Tensions between traditional and extended company reporting
laid bare in new report

By Pattrick Smellie

March 13
(BusinessDesk) - Some three-quarters of the chief financial
officers of New Zealand public companies are either unaware
of or not interested in emerging methods for extending
reporting beyond traditional financial indicators, according
to research by the McGuinness Institute.

Conducted for the
External Reporting Board, an independent Crown entity
responsible for setting standards of corporate reporting in
New Zealand, the research found that only 23 percent of the
92 CFOs who responded to the survey were using an externally
developed EER reporting framework, and that the vast
majority either did not know about or appeared to be "not
interested" in them. EER stands for extended external
reporting.

The survey found that 84 percent of those who
prepare corporate reports for external audiences were either
unaware of or skipped the question asking whether they knew
of the EER framework known as the Global Reporting
Initiative, which seeks information on a far wider range of
environmental, ethical and social indicators than
traditional company financial accounts.

Three other common
EER frameworks also scored in the 80s and 90s for either
being unknown or the question unanswered.

The survey was
sent last year to all NZX-listed companies and the Deloitte
Top 200 New Zealand companies. A second survey was sent to a
range of potential users of such reports, including
investors, industry organisations, not-for-profit
organisations, and universities, prompting 104 responses.

Sharply divergent views emerged about the worth of such
reporting, with some 10 percent of such report's potential
users labelled 'EER sceptics', another 20 percent as
'pragmatic sceptics', 30 percent were 'EER supporters' and
40 percent were 'pragmatic supporters', the latter group
seeing EER reporting as in the public interest, but needing
to be balanced with private good.

Pragmatic supporters
believe "New Zealand is lagging behind international
reporting practices; in particular companies are not
reporting well on the wide range of risks they face" but are
also wary of too much information being required and "the
large number of different frameworks in the public arena".

The smaller, sceptics group focused on the cost and
practicality of EER reporting.

"The people going down this
track need a dose of reality, or is socialism the goal?"
said one respondent.

Another feared "another unnecessary
layer of bureaucracy" if companies were required to report
against a wider set of benchmarks, which could include
health and safety performance, the gender split of a
workforce, environmental compliance, company tax payments,
cybersecurity breaches, and average payment
terms.

Significant gaps emerged between report preparers
and users on the value of reporting on the so-called 'four
capitals' - natural, human, economic, and social.

The chief
executive of the XRB, Warren Allen, said the research was
part of a drive to improve the quality of New Zealand
companies' reporting, and that it "did not improve as
rapidly as we had anticipated" between 2011 and 2017".

"We
are confident that if New Zealand as a nation desires better
reporting, the change from 2018 to 2025 could position New
Zealand as a world leader in EER, not only improving
investment decisions but also reinforcing our clean green
brand."

Some 56 percent of those who prepare company
reports thought they should receive independent assurance,
against 76 percent among users.

"Compliance cost would be
an unnecessary cost and a barrier to completion," said a
comment from one report preparer.

However, if independent
assurance for EER reports were made mandatory, both
preparers and users put more faith (45 percent and 41
percent respectively) in the XRB as the body to set the
requirements. Other options were the Financial Markets
Authority, favoured by 20 percent of preparers and only 12
percent of users; legislation (18 percent vs 27 percent),
and the NZX (11 percent support from both groups).

The
report quoted one independent assurer as saying that: "in my
experience, company systems for reporting this information
are not mature and they are more prone to error", with risks
to "issues of balance" and "potential bias towards a more
positive story".

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